What Happens To Media Stocks If Aereo Wins At The Supreme Court?

At least one analyst doesn't expect many long-term implications for broadcasters if the upstart streaming service defies conventional wisdom and prevails in its Supreme Court case.

Shares for broadcast companies and CBS likely will take a hit if the conventional wisdom is wrong and justices uphold Aereo’s right to stream TV signals without payment, Wells Fargo Securities’ Marci Ryvicker forecasts this morning. Justices should make their decision before June 30, when the current term ends. If they agree with Aereo — which says it merely leases antennas so consumers can access free TV — then many on Wall Street say stations will lose leverage to demand rising retransmission payments from pay TV providers. Broadcast company stocks could fall as much as 20%, and CBS could drop 7%, Ryvicker figures.

Investors shouldn’t worry: an Aereo win wouldn’t change things for the short to mid term, she says. Still, “we do acknowledge that sentiment will drive these stocks lower” referring to a group that includes TV station owners Sinclair, Media General, Nexstar, Gray Television, and Journal Communications. The broadcast companies’ shares “seemed to be somewhat ‘rocked’ by the Supreme Court’s decision to review” the Aereo case. As for CBS, Ryvicker says investors might decide it’s just worth 12.7 times expected per share earnings — down from its current trading price at 13.7 times — which would cut the price by 7%. But “we don’t anticipate it staying there for long,” in part because “CBS can pursue its option to go straight to cable or figure out some sort of other business model that would lessen any potential long term impact of Aereo.” Disney, Fox and Comcast (which owns NBCUniversal) likely wouldn’t see more than a low single digit drop for a day or so. They “own cable networks so it’s really hard to see any change to the business model regardless of the Supreme Court’s decision.”

If Aereo loses, then investors who have stayed on the sidelines might feel comfortable about investing in broadcast companies, giving their stocks a potential bump of about 12%. And CBS shares could rise 6% if buyers decide it’s worth 14.4 times earnings, about the same level as Time Warner. Broadcasters have less to gain from a victory because Wall Street already expects them to prevail. Odds of an Aereo win dropped to 30% from 50% based on justices’ challenging comments to its lawyers during oral arguments on April 22, the analyst says. But she adds that “there is NEVER a guarantee when it comes to litigation” — which is why many investors have asked her to assess the risks if the consensus is wrong.

Ryvicker acknowledges, though, that her heart isn’t in this analysis. “At the end of the day, we don’t view Aereo as that big of a deal,” she says.

11 Comments

If Aereo wins, it means more people may be able to see their local stations with a clearer signal. More eyes watching, that should be something CBS and the others want.

LeBron's Menstrual Cramps • on Jun 12, 2014 9:13 am

If Aereo wins, consumers will win BIG time for a long time until the next BIG thing/innovation comes along

I hope Aereo wins and i’ll ditch my cable pronto!

Kellie • on Jun 12, 2014 9:13 am

I live rural and the antennas you buy at WalMart etc will not work here so Aereo is the best way for me to get the local channels. I am a single mom and can not afford dish and direct TV. So to CBS and the rest of them this is the only way to reach this audeince.

Ojo • on Jun 12, 2014 9:13 am

I will love if Aereo win

DonDonP1 • on Jun 12, 2014 9:13 am

Respectfully, I don’t want free over-the-air broadcast TV to be a thing of the past. I want it to continue to co-exist with pay TV.

Could you please make your astroturfing a little more obvious, I think maybe there are one or two people somewhere too dumb to not realize a paid shill submitted that post.

brwct08 • on Jun 12, 2014 9:13 am

Aereo NEEDS to win for the consumer. The broadcasters are bottom feeders anyway.

Kit Kimes • on Jun 12, 2014 9:13 am

If Aereo “wins”, we all win, period. I live 45 miles from downtown Chicago and have a hard time getting a reliable HD picture with our local channels. I’m paying about $80 a month to Comcast so I can get our local channels. Yes, I do get some side benefits such as VOD and some cable channels that I watch occasionally, but I could live without that if I could get my local channels for a small fee. And Comcast still “wins” also because I will have to keep my high speed internet to be able to watch Aereo.

FRANK • on Jun 12, 2014 9:13 am

AEREO is the future, is the progress and progress is unstoppable.
if aereo win, that is as it should be, the progress win, if not, another service like aereo will come, the tv thru internet is unstoppable!!!

Dave • on Jun 12, 2014 9:13 am

Regardless of an Aereo win or loss, the cat is out of the bag. The Aereo case has simply brought to public attention the severely poor network management that broadcasters have deliberately maintained for so long, to increase and preserve their precious subscription fees. With the invention of cable subscription fee models came the excuse to virtually halt any kind of progress in the over-the-air broadcasting realm. The issue isn’t whether or not Aereo is breaking copyright law, it is whether or not broadcasters will continue to be allowed to justify the double dipping that occurs with paid commercial advertisers and consumer fees, pillaged from under-served geographical areas, mine included. HULU/Netflix + Local content spells massive (much needed) reinvention of the archaic cable subscription model. WTG Aereo and the Internet!